Corporate credit cards: How they work, benefits, drawbacks

Climbing the corporate ladder? Then don't slip on a corporate credit card.

Used wisely, corporate credit cards can help you simultaneously achieve career goals and reap personal perks. Used poorly, they can lead to a corporate freefall, or at least a drop of a few rungs.

What is a corporate credit card?
Corporate credit cards are a distinct group within the greater credit card universe, separate from both personal and small business credit cards. Companies may provide their employees with corporate cards for the payment of approved, business-related expenses, most often travel-related. Usually issued in the company's name, corporate cards also display the name of the individual employee cardholder.

Unlike personal and small business cards, corporate credit cards are offered by only a few issuers. Corporate credit card accounts are generally established by businesses using a banking relationship or via a deal negotiated directly with a card issuer. In developing such a relationship, the company's credit is considered, just as an individual's credit is considered when applying for a consumer credit card.

Two types of corporate credit cards
When it comes to payment, corporate cards fall into two categories: individual payment cards and company payment cards. Employees who are issued an individual payment card are responsible for submitting their own expense reports, based on company policy, and paying the issuer directly for any charges. With company-payment cards, the employer picks up the tab for all company-sanctioned charges. The employee may still pay the issuer directly for any unapproved or personal charges.

Learn your company policiesRegardless of which type a company issues, experts say cardholders need to first familiarize themselves with the spending and reporting rules established by their employers.

"Understand your company's credit card and travel policies, procedures, spending limits and restrictions," says Frank Dombroski, vice president of commercial card solutions for Chase. For example, a company might decree that airfare and car rentals are approved travel expenses, while gas and toll costs need to come out of the employee's pocket.

In addition to broad company policies on corporate card use, employees should educate themselves on any policies specific to their department or position. For example, "the CFO might have a different spending profile than the field engineer," says Michael O'Malley, marketing manager with GE Money Corporate Payment Services.

Cardholders should find out the types and limits on making charges with their corporate card. Even within approved spending categories, companies may set charge limits, with different spending restrictions established for different types of merchants. This enables companies to essentially "paint by numbers" when it comes to employee spending, O'Malley says. Such control means an employer may decide to cap charges at a lower level for office supplies than for airline tickets, for example. The number of transactions in a given time limit ("velocity") can also be controlled to prevent employees from going overboard with spending.

Experts advise cardholders to take advantage of any corporate credit card training sessions. Often these may be mandatory. "Many companies require that new cardholders take in-person training courses or online tests before a card is activated," Dombroski says.

But don't rely on Big Brother to keep you abreast of the rules. "Many companies also post credit card policies and updates on their Intranet site," Dombroski adds. "Stay informed."

Avoid the pitfalls
While education should go a long way toward helping employees make wise corporate card decisions, there are a number of pitfalls that experts say cardholders should be sure to avoid.

One threat comes from unapproved charges, which can end up hitting the cardholder in the wallet. Commonly, cardholders using individual payment cards need to have their expense reports filed and approved by management before getting reimbursed. This means the employees could be on the hook for any unapproved charges.

Another danger involves mixing personal expenses with business spending. Cardholders may be tempted to skip the hassle of performing a separate transaction on a personal credit card, instead simply including unapproved expenses on the corporate card. Experts say such mixing of personal and business expenses may put the employee on a collision course with management.

Meanwhile, employees who are convinced they can slip personal charges past the watchful eyes of their bosses need to beware. Many large corporations employ a travel and entertainment card manager who randomly audits travel expenses. Says JPMorgan Chase's Dombroski: "You are being watched!"

Use common sense
Perhaps one of the biggest dangers comes from a lack of simple common sense. Dr. Gabriela Corá, president of the Miami-based consulting firm Executive Health & Wealth Institute Inc., says a co-worker in the pharmaceutical industry once charged a $4,000 advance toward a car on a corporate card. Even smaller personal charges can prove problematic. Jennifer Stoddard, assistant vice president at Family First Federal Credit Union, says that a co-worker doing some job-related shopping was exposed when a receipt from wholesale club Costco turned up an item that was certainly not company approved: a package of diapers.

Some charges are more obviously personal than others. Before swiping that corporate card, Corá recommends asking yourself a question: "Is this 100 percent related to your job?" For expenses that may have not been addressed by training or seminars, "Common sense will guide you," she says.

Company-imposed limits on corporate credit card use may prevent employees from making prohibited purchases, but they may also occasionally mean that an acceptable charge gets denied. Although this may cause some embarrassment to the cardholder, the charge may still be approved. O'Malley says that in cases where a legitimate transaction is blocked, employees should put in a call to the program administrator at the company, who can make a quick adjustment and enable the transaction to go through.

Watch your credit scoreJust as a consumer's credit score is used to determine approvals for a personal credit card, it can also come into play when a company hands out corporate cards. As explained by credit bureau Experian, employees "need a good credit history to qualify for a corporate credit card used to rent a car, purchase airline tickets, pay hotel bills and buy dinner for clients." American Express says that it makes inquiries into individuals' credit scores before issuing them corporate cards, adding that its card member agreements authorize AmEx to make credit inquiries where they are appropriate.

Additionally, being delinquent with payments can sting a cardholder's credit score. American Express says that a credit bureau is informed of delinquencies depending on if the company chooses to make the individual liable for payment, regardless of card type. AmEx reports accounts to a credit bureau once payments become past due for 180 days, since the cardholder is responsible for submitting expenses. In instances where the company is fully liable, the cardholder's credit score is not in danger.

Therefore, cardholders need to make sure they are aware of when expense reports are due, what type of liability their companies have chosen and due dates for any payments. Some experts recommend setting up e-mail alerts to remind the cardholder of when those payments are due.

Theft and loss
Just as consumers should always keep their credit cards in safe places to prevent theft or loss, employees also need to ensure the security of their corporate cards.

Since each credit card issued by an employer has its own unique number, blocking a lost or stolen corporate card is no different from blocking a consumer card. Just as with a personal credit card, the loss or theft of a corporate credit card should be reported as soon as possible to prevent fraudulent charges and to begin the process of receiving a new card and account number. In cases where employees are unaware their cards are lost, issuers may contact them if suspicious charges appear.

Contacting the issuer as soon as plastic goes missing prevents further fraud and gets a new card issued more quickly. GE Money's O'Malley says an employee may wait a week to 10 days for a new corporate credit card in a nonemergency situation. In emergency cases, such as when the employee is traveling overseas, a new card or account number can be provided almost immediately.

Benefits offered, too Luckily for employees, corporate cards do not just come with a list of warnings -- they frequently provide perks, as well. Since some businesses leave it up to employees to choose whether to use the corporate card, "It's important to have a value proposition not only for the company but for the employee," says Eduardo Vergara, senior vice president of global project management and marketing with American Express. Offering benefits encourages card usage and can improve employee morale, Vergara says.

One of the initial benefits of corporate card use comes when it is time for payment. With company-pay cards, employers float the funds themselves, meaning employees never take money out of their personal accounts. Any time a credit card user can leave money in a checking or savings account longer (or in this case, not have to take money out at all), interest payments mean additional funds can accrue.

Corporate cards may also save employees' time. Some offer electronic expense reporting that links the card purchases with corporate expense reports, automatically populating the reports with the purchase information. Employees then need to fill in only those purchases not made using the company plastic, such as by cash or check. While convenient, such electronic expense report systems may also flag expenses in violation of company rules or limits -- such as paying for a business class seat on a flight when the employee should have booked an economy ticket instead.

Having a corporate card may enable a worker to earn rewards on the company's dime. For example, the Diners Club Corporate Card's optional Club Rewards program offers employees more than 800 reward options, including miles on 21 air carriers' frequent flier programs and eight hotels' frequent-guest programs. With the American Express Membership Rewards program, employee cardholders earn one point for every dollar charged. These rewards programs can spell big perks for heavy chargers. In one air-miles redemption bonanza, Corá turned points earned during her employment with a pharmaceutical company into four plane tickets, and took her family to Hawaii.

Unfortunately, just because employees have cards offering rewards does not mean they will get to keep them. Whether the cardholder gets to redeem rewards may depend on company size. GE Money's O'Malley says large companies generally allow the cardholder to keep the points earned, while in the small and middle market, there is more of a mix. He explains that for smaller firms, rewards offer the chance to offset annual corporate costs or to grant incentives to high-performing employees. Other small companies may not offer a corporate card with rewards at all, instead preferring a card program that instead yields deeper discounts from suppliers.

Travel with a corporate card
Corporate cards offer other unique perks, too. Employees who are often on the go for work will find their corporate card provides perks to make trips smoother and safer.

Since corporate cards are often used for travel expenses, cardholders may appreciate benefits that can be enjoyed at airports across the United States or around the globe. Among such perks, employees who display a platinum- or centurion-level American Express corporate card are granted access to airport lounges of major carriers, including American Airlines, Continental Airlines, Delta and Northwest, when they present a ticket for same-day travel on that carrier and a government-issued ID. Diners Club also provides its cardholders with access to a network of more than 100 airport lounges in major airports across cities worldwide. American Express corporate cardholders also are offered preferred pricing (14 months for the price of 12) on Clear, which provides express security lanes at U.S. airports.

Additionally, a corporate credit card may offer some protection against unforeseen travel incidents. Employees who choose to carry or use a corporate card for business expenses lessen the likelihood of endangering their personal information. "Providing your company-approved card while on business travel is a safer proposition than providing your personal card," says O'Malley. Not only does this lessen the chance the employee will become a victim of fraud, but the corporate card also means the entire company's travel program and the card issuer will be working to help the individual should anything go wrong, as opposed to seeking help as a lone consumer.

Another travel benefit comes in the form of automatic insurance coverage. Some of these insurance packages cover cardholders for the entire length of their journeys. American Express corporate cards provide 24-hour door-to-door travel accident insurance from the moment cardholders leave home until they return. Carry-on baggage insurance is provided, too. Meanwhile, Diners Club cardholders are provided with primary rental car insurance and emergency medical assistance.

Treat it as if it were your money
A corporate credit card shares many similarities with a personal credit card, but includes the added wrinkle of involving an employer in the process. Cardholders who educate themselves about the rules for their company and for the card can avoid the pitfalls as they enjoy the benefits. In the end, it makes sense to treat a corporate card in much the same way as a personal card. Dr. Cora says much of the process comes down to a simple question: "Would you do the same if it were coming out of your pocket?"

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